Thursday, January 28, 2021
Home Economy and Finance Finance Ministry needs to move away from Socialist policies: Surcharge on rich was wonky...

Finance Ministry needs to move away from Socialist policies: Surcharge on rich was wonky enough, new CSR norms are beyond ridiculous

There’s a lot of good things that are happening on the development front but they’re all likely to succeed only when there’s economic growth and therefore, the government should consider a departure from the wonky socialist policies of the past.

Everyone was aware of the challenges that our economy faced before the budget was announced. The expectation was that the budget is likely to signal a positive policy shift towards a more business-friendly environment that would be conducive towards achieving wider prosperity. To be fair to the government, it took a lot of small steps in the right direction in its recent budget.

But the budget made a catastrophic blunder by the imposition of the surcharge on the rich. When it became apparent that the surcharge would also apply to trusts, that’s when things started to go south and then came a statement that the surcharge would be applicable on FPIs registered as trusts.

It is appalling that the Finance Ministry was not aware of the consequences of the decisions that were being taken by them during the budget process. Economic policymaking is not about trial and error and it requires one to meticulously understand and appreciate the complex economic structure. These policy blunders will not have a huge impact on whether India achieves a 5 trillion-dollar economy by 2024 or 2025 or not but they will curtail our growth potential which far succeeds the 5 trillion-dollar target that has been set at present.

The problem is not just with this decision but with the genuine belief within the Ministry on the need to tax the rich more and this misguided morality is likely to cause migration of high skilled workers and of high skilled jobs to countries such as Singapore etc which are much more tax-friendly. A consequence of this is that India would lose out on even the pre-surcharge tax rates.

Moreover, in an earlier joint article with Dr Surjit Bhalla, we showed the Laffer’s curve for corporate tax rates and tax revenue as we argued how India’s direct tax rates are too high (You can read the article by clicking here). Therefore, what was expected from the government was tax reforms and not a reversal to the Indira Gandhi era of high tax rates and low compliance. From the point of view of compliance, complex taxation structure combined with high rates is a disaster as it incentivises people to conceal their income. For a government that has focussed on improving tax compliance, such moves just seem to reverse the fruits of their previous hard work.

But forget about taxes for a second and let’s just look at this year’s economic survey which argued for a revival of private investments and to rekindle animal spirits. Since the budget, we’ve seen repeated measures that have only worsened investor sentiment, and this is visible as FPIs have started to pull out their money from India. At a time when the global supply chains are shifting, rather than improving domestic policies to facilitate their shift to India we’re making them worse.

The economic survey highlighted the issue of small firm size in India compared to the global average and similar countries. Indeed, the issue of small firm size has been discussed in great detail and a major reason behind this has been our wonky labour policies. But the UPA government made a misadventure owing to their socialist tendencies when they imposed Corporate Social Responsibility norms in the Companies Act.

Across the globe, there are discussions regarding CSR norms and their implications for social responsibility, governments, public policy and society in general. There are many arguments for and against CSR norms and most of these arguments are valid. But, let’s keep two things in mind. First, these debates are happening in countries which have a per capita income of at least 10 times that of India and therefore, they’re at an advanced stage of development compared to India. Secondly, the average firm size in these countries is much larger than that in India and therefore, by adding an additional burden of CSR on our companies we divert critical resources that would have otherwise been invested into business operations or distributed as dividends by the company.

The impact of these CSR norms on development objectives, companies, their growth and their size is an issue that needs to be adequately explored but one has to question the rationale behind the imposition of CSR norms on companies that are already paying one of the highest corporate tax rates in the world.

The recent amendments made by the Hon’ble Finance Minister to the company’s act has only reignited the debate on CSR provisions under the act. One must question the move as companies are already paying a corporate income tax, they must pay an additional dividend distribution tax and individuals have to pay an additional 10 per cent the moment their dividend income exceeds 10 lakh rupees. The same income is tax thrice and this happens perhaps only in India.

Despite this, if the government mandates companies which should be guided by the motivation of profits to undertake social responsibility then we should question the efficacy of public expenditure. More so when public resources are being utilized to keep PSUs alive that should have long been closed or downsized, one completely understands why people are outraged at such decisions.

At a time when we want to upscale our firms, boost private investment, promote entrepreneurship and attract foreign firms we should be having business-friendly policies instead of the Nehru-Indira style socialist policies. We tried the socialist policies and it only gave us scarcity, widespread poverty and a sluggish growth rate.

There’s a lot of good things that are happening on the development front but they’re all likely to succeed only when there’s economic growth and therefore, the government should consider a departure from the wonky socialist policies of the past.

  Support Us  

Whether NDTV or 'The Wire', they never have to worry about funds. In name of saving democracy, they get money from various sources. We need your support to fight them. Please contribute whatever you can afford

Karan Bhasin
Karan Bhasin is a political economist by training and has diversified research interests in the field of economics. He tweets @karanbhasin95.

 

Related Articles

Trending now

Sources claim Aroon Purie has stepped in to ‘manage’ the resignation of Rajdeep Sardesai, he may exit at a more ‘honourable’ time later

Rajdeep Sardesai may quit India Today at a later date so that his exit is not linked to controversies of this week

Speculations rife, Rajdeep Sardesai quits India Today after channel took him off air for spreading fake news

Sources claim that Rajdeep Sardesai termed his suspension and salary cut a big humiliation for him, and decieded to resign from India Today

‘You are a Dalal and a part of Godi Media’: Protestors confront Rajdeep Sardesai

A group of protestors had confronted Rajdeep Sardesai. While Sardesai tried to argue with them, they kept calling him 'Dalal' Dalal'.

‘We have no other money’, Prannoy Roy and Radhika Roy offer their NDTV shares as security in lieu of deposit against SEBI penalty

Supreme Court noted that Prannoy Roy and Radhika Roy must deposit some security against SEBI penalty, else SAT will not hear their appeal

Canadian MPs urge PM Justin Trudeau to officially condemn China’s treatment of Uyghur Muslims

Canadian MP Garnett Genuis said that Canada must recognise and respond to the Uyghur genocide in China.

Rajdeep Sardesai facing heat for peddling lies? Reports claim he is taken ‘off air’ by India Today, faces salary cut

Rajdeep Sardesai has been penalised for spreading fake news that farmer who had died in accident was shot dead by Delhi Police

Recently Popular

Speculations rife, Rajdeep Sardesai quits India Today after channel took him off air for spreading fake news

Sources claim that Rajdeep Sardesai termed his suspension and salary cut a big humiliation for him, and decieded to resign from India Today

Nude images of Thailand King’s royal mistress leaked online, rivalry with Queen suspected: Read details

The leak of the "very explicit" photos of Sineenat Wongvajirapakdi, who is fondly known as 'Koi', is believed to be a result of the bitter rivalry between her and the Queen.

Tractor rally: Rioting mob vandalised Ram Mandir and Kedarnath tableaux from Republic Day parade

Rioting mob on Tuesday not only desecrated the Red Fort and tried to kill the Delhi Police personnel but also vandalised the tableau from the Republic Day parade.

Rajdeep Sardesai lies twice, says ‘farmer’ was killed because the police shot him in the head: Here is the truth

In this way, those who had shared the fake news once would live under the false impression that it was indeed a case of police firing.

‘Flag of Khalistan is waving on Red Fort,’ ‘Historic Moment’: All Pakistan Muslim League celebrates “Black Day” for India

The All Pakistan Muslim League (APML) is celebrating the hoisting of the 'Khalistan Flag' at Red Fort on Republic Day.

Rajdeep Sardesai facing heat for peddling lies? Reports claim he is taken ‘off air’ by India Today, faces salary cut

Rajdeep Sardesai has been penalised for spreading fake news that farmer who had died in accident was shot dead by Delhi Police
- Advertisement -

 

Sources claim Aroon Purie has stepped in to ‘manage’ the resignation of Rajdeep Sardesai, he may exit at a more ‘honourable’ time later

Rajdeep Sardesai may quit India Today at a later date so that his exit is not linked to controversies of this week

News Minute publishes false information in the TRP manipulation case, corrects it after receiving legal notice from Republic TV

The News Minute had falsely said that BARC had determined TRP manipulation based on exchanges between Arnab Goswami and Partho Dasgupta

Republic TV files defamation suit against Times Now anchor Navika Kumar, sends notice to Indian Express. Details

The Republic TV petition mentions that Goswami had launched Times Now in 2006 and had taken it to the number 1 position in a year. It adds that Times Now and Kumar are now harbouring professional jealousy against Republic TV because of its success.

Speculations rife, Rajdeep Sardesai quits India Today after channel took him off air for spreading fake news

Sources claim that Rajdeep Sardesai termed his suspension and salary cut a big humiliation for him, and decieded to resign from India Today

‘Kiran ki na ka matlab?’ UP Police gets innovative while spreading awareness about consent of women

UP Police used a clip from the movie Darr, that dealt with the topic of respecting the 'no' answer of women, to spread awareness

‘You are a Dalal and a part of Godi Media’: Protestors confront Rajdeep Sardesai

A group of protestors had confronted Rajdeep Sardesai. While Sardesai tried to argue with them, they kept calling him 'Dalal' Dalal'.

‘We have no other money’, Prannoy Roy and Radhika Roy offer their NDTV shares as security in lieu of deposit against SEBI penalty

Supreme Court noted that Prannoy Roy and Radhika Roy must deposit some security against SEBI penalty, else SAT will not hear their appeal

Canadian MPs urge PM Justin Trudeau to officially condemn China’s treatment of Uyghur Muslims

Canadian MP Garnett Genuis said that Canada must recognise and respond to the Uyghur genocide in China.

Video from Punjab: Tractor runs over farm law protestors, kills 2, injures 3 others

The incident occurred near the Attari-Verka bypass in Vallah, Amritsar on 26 January.

Rajdeep Sardesai facing heat for peddling lies? Reports claim he is taken ‘off air’ by India Today, faces salary cut

Rajdeep Sardesai has been penalised for spreading fake news that farmer who had died in accident was shot dead by Delhi Police

Connect with us

245,563FansLike
496,912FollowersFollow
23,000SubscribersSubscribe